UBI declares Mallya wilful defaulter

United Bank of India (UBI) on Monday declared Kingfisher Airlines and its chairman Vijay Mallya wilful defaulters for non-payment of Rs 400 crore of dues – a move that the grounded airline company described as “post-haste”. Three company directors – Subhash R Gupte, Ravi Nedungadi and Anil Kumar Ganguly – also figure in the list.

The bank’s grievance-redress committee on wilful default on Monday met at its Kolkata headquarters. “No representative from the airline company attended the meeting. The committee deliberated on the written submission of the company, examined the documents and directed the bank to declare Kingfisher Airlines and its directors wilful defaulters,” Deepak Narang, executive director at UBI, told Business Standard.

Kingfisher Airlines had moved the Calcutta High Court two months after the bank had in May identified it and Mallya as wilful defaulters. The court last week dismissed the plea, paving the way for UBI to declare the company and its chairman wilful defaulters.

“Kingfisher Airlines (KFA) has been demanding that UBI permit KFA to have legal representation of its choice at the hearing to be held before the grievance redressal committee set up by UBI. The basis for KFA’s demand is that being declared a wilful defaulter entails serious consequences, including penal consequences. Hence, depriving KFA of an opportunity to be represented by a trained legal profession is a miscarriage of justice, a denial of real and reasonable opportunity of defending itself and a violation of the principles of natural justice,” the company said.

A single judge and the division bench of the Calcutta High Court by orders dated July 10 and August 28 had dismissed a writ petition and an appeal respectively filed by Kingfisher Airlines against UBI’s move. On August 29, the airline company had filed a special leave petition before the Supreme Court against the orders of Calcutta High Court.

“In the meantime, even before a copy of the order dated August 28 passed by the Honourable Calcutta High Court has been made available to the parties and even before the special leave petition filed by KFA has been listed before the Honourable Supreme Court of India, UBI has post haste proceeded to purportedly declare KFA and its directors/erstwhile directors as wilful defaulters in respect of an overdraft facility of Rs 7.5 crores,” the company said.

According to the Reserve Bank of India’s (RBI’s) guidelines, a wilful default is a situation where an entity has the capacity to repay its dues but chooses not to do so, or uses the borrowed money for purposes other than that for which a loan was availed of. For instance, if a borrower uses short-term working capital funds for long-term purposes or deploys the borrowed money for creation of assets other than those for which the loan was sanctioned, it is considered diversion of funds and the borrower is classified as a wilful defaulter.

“We had asked Vijay Mallya and other directors of Kingfisher Airlines to appear before our grievance-redress committee. But they wanted to be represented by lawyers and moved the court. We did not agree because we were relying on simple banking documents and statements of the company. There was no need for lawyers to be part of the grievance-redress committee meeting,” said a banker familiar with the development.

Bankers said they found “enough evidence” of Kingfisher Airlines’ and its group companies’ ability to repay the money borrowed from the bank. “At the time of taking the loan, Kingfisher Airlines had agreed to pledge its properties as securities. When it defaulted, banks tried to recover their dues by selling some of those properties. As a good borrower, it should have helped banks in the process. But it has been putting obstacles and preventing sale of the assets by filing court cases. Also, United Breweries Holdings (the parent company of Kingfisher Airlines) is the corporate guarantor for the loans. While the company has been raising money, it has not made any effort to repay at least part of the loans,” said a banker.

UBI has informed RBI, Credit Information Bureau India Ltd and the Securities and Exchange Board of India of its decision to declare Kingfisher Airlines and its directors wilful defaulters. The move will prevent Mallya and other directors from availing of fresh loans and they, according to bankers, would also have to step down from the boards of different companies.

Kingfisher Airlines said it intends to pursue all available legal remedies, including in the special leave petition filed before the Supreme Court.